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Saturday, June 17, 2006

0% on a Balance Transfers Will Not Last Forever

Have you ever been attracted to a credit card because it promises you an outstanding interest rate that seems just too good to be true? Most of us have at some stage jumped for one of these attractive offers. There are a growing number of credit card providers out there that will offer you 0% deals on either balance transfers or purchases, and sometimes they just seem too good to resist.

Particularly if you have a large outstanding credit card balance that you are currently paying a lot of interest on, these offers will be very tempting. In fact, many 0% balance transfer offers will save you hundreds of pounds on interest that you would otherwise have had to pay on your credit card balance. But no matter how attractive such offers may appear at the time, you should only ever take on another credit card if you have taken the time to review your finances and are satisfied that it is the right financial move for you at this time.

To look at a typical example, suppose you have one thousand pounds outstanding on a credit card that charges 10% APR. This means that over the course of a year, this balance will cost you 100 pounds in interest charges. Now suppose you find a credit card that offers you 0% on balance transfers for six months. Well it is pretty obvious that 0% is better than 10 and if you were to take up this offer, assuming there are no balance transfer fees, then how much will you have saved over the six month interest free period? The answer is 50 pounds. However, what will the interest rate revert to once the interest free period has come to an end? This is something you should be thinking about before you opt for the credit card, and not when the interest free period is about to expire and everything is more urgent. Suppose, for the sake of our example that the interest rate reverts to a rate of 25%. This means that over the next six months you will pay �125 in interest.

While this is a very simple example, it illustrates an important point when it comes to 0% balance transfers. In the example above if the customer had stayed with his 10% card, he would have paid �100 in interest over a 12 month period. In the same period, by opting for a 0% balance transfer for six months that then reverted to 25%, he ended up paying �125.

The point to remember is that just because a credit card offers you 0% does not mean it is the best deal out there. Look at the long term rates that the card will offer you, and compare these to the rates you are already getting from your credit card. If your existing rate is better than the rates that you will get from the new card once the introductory offer expires, then maybe you should remain loyal to the card you have.

So while this is going on you will not be spending on the new credit card, but you will be safe in the knowledge that you are saving the interest payments on the old debt.

*** Fixed for the first month, but after we may change itwithout notice for: late payments, going over your balance,changes in the prime rate, or just cause we want more ofyour money.

**** Rate depends on your credit score. (Which we alreadychecked and intend to charge you 19.8% or we wouldn't bothersending you this great***** offer.)

***** A payment may be late if we just don't get around toprocessing it in time no matter when you actually mailed itto us.

****** May not be great in all states.

Yes, folks, "the devil is in the details" and the truth isin the fine print.

While this is obviously an exaggerated and fictitiousexample I have seen most of these "weasel" clauses in the100s of credit card offers I receive each year.

Some of these tricks and traps are practiced by local andnational merchants with their "store credit cards" and"discount cards".

I have seen stores and even car dealerships make "nointerest for a year" type announcements and advertisements.But when you actually read the contract (and who does that -they count on you to not read the whole thing and youprobably won't understand it without your attorney) you mayfind that instead of the regular payments you would expectto start at the end of the no interest period, you arerequired to pay the full purchase price.

If you want to make installment payments, you will berequired to pay the payment plus the interest (look for therate in the fine print) and you may also be required to paythe interest that accrued during your "interest free"period. Gotcha!

Or how about the "no annual fees" bit. Look out for thecontract to say "no annual fees FOR THE FIRST YEAR". Orfirst two years or that a "membership" fee is required. Howthat differs from an "annual fee" is beyond me.

Also watch out for the "no annual fees" for the use of thecard but "membership fee required" to participate the infrequent flyer miles or cash back points program (which wasprobably why you chose that card to begin with). Gotcha!

And how about the "fixed" rate? Read the fine print, itwill actually say "subject to change without notice". Is itjust me or do I misunderstand the meaning of the word"fixed"?

Also your "fixed" rate may be raised to the "maximumallowable by state law" if you go over your credit limit(including fees that may put you over your limit before youeven know it), make a late payment, miss a payment or do notpay the full amount. Gotcha!

And then there is that low "teaser rate". Yes that's whatit is called in the industry and it is appropriatelydescriptive. That rate is given out, they aren't lyingabout that. But it is only given to the people who have 700or above credit scores, minimal debt, and a high paying job.

The majority of the people who are sent the ad will not getthe lowest rate. But you won't know your rate until youapply for the card. But by the time they tell you what rateyou will be at they have already signed you up and issuedyour card.

They count on the fact that most people will just accept therate and go from there. Gotcha!

So how can you avoid these traps?

Rule #1, read ALL of the fine print. If you are not clearon something ask someone else what they think it means. Askan attorney friend, CPA (certified public accountant),financial planner, banker or other person in the financialindustry. Chances are they will have several questionsabout the fine print, too.

Rule #2, don't apply for a card unless or until they tellyou what your actual rate will be. This is hard becausemost of them are not set up to tell you. Generally you willneed to know your credit scores and have a copy of yourcredit report handy.

Even then you are unlikely to find someone through theirtelephone maze that will or can actually answer yourquestion. Try to find a card that gives you a confirmedrate before you apply. A conscientious company will firstrequest a copy of your credit report from one of the creditbureaus before quoting you a rate.

Look on http://www.bankrate.com for current rates offered byvarious credit card companies and banks. Often smallerbanks and companies offer better deals and are not as strictor hard to deal with. Check with your local banks also. Atleast with a locally issued credit card "you know where theylive".

Rule #3, always mail your payment at least 7 days before itis due. Or try paying through the Internet. Many companiesnow offer that payment method. It can also save you timeand stamps.

Rule #4, check your statement each month to be sure you arestill at the interest rate you signed up for. If your ratehas been increased, look for a late payment fee, or someother reason for the increase. Call the company and askthem why they increased your rate.

If your rate was unjustly increased (they processed thepayment late or credited it to your account late, but it wasnot received late) then ask them to change your rate back towhat it should be.

Even if you did make a late payment, most companies willreduce your rate after six months of on-time payments. Butif you don't ask, they will keep you at the higher rate aslong as they can.

In the credit card business it is definitely "caveat emptor"or buyer beware!

ABOUT THE AUTHOR

� Simple Joe, Inc.David Berky is president of Simple Joe,Inc. which sells the Simple Joe's Debt Eraser PC software.Debt Eraser can help anyone get out of debt quickly andinexpensively by creating a Rapid Debt Reduction Plan.

airlinecardcredit

reliable information on credit cards - online investing - personal loans - owning and operating your own home business. indepth information from professionals in their field. dont forget to check out our links to the best sources on the internet, these days information and research is critical to making the best educated decision to suit your needs.